The role of digital across capital markets
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The role of digital across capital markets

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Christina Ma, Head of Global Banking for Asia Pacific at HSBC, discusses the digital revolution happening in the financial sector – and HSBC’s pivotal role in leading the transformation.

In another year of global slowdown, Asia’s economic growth continues to stand out, contributing to around 60% of global GDP in 2023. High rates of digital adoption and rising affluence have led to a burgeoning retail investor class, while the growing pools of wealth – accumulating domestically and moving abroad – are attracting banks, asset managers and hedge funds into the financial hubs across the region.

The fast pace of change in Asia’s wealth base has meant that innovation and technology are needed to service clients.

According to HSBC Research, Asia overtook the US in terms of financial wealth in 2008 and has since tripled its wealth to nearly $140 trillion in 2021.

As the wealth base grows in Asia, the region has witnessed changes to where the money is being deployed. Historically, real assets, mainly property, dominated the picture. But increasingly, money is flowing towards financial assets in both public and private markets, often with a helping hand from digital solutions.

The potential of alternative assets is huge. For instance, Asia-focused private debt assets under management soared anaverage of about 30% in the five years to end-2021, fueled in part by wealthy investors seeking returns. The size of the global private market is well over $12 trillion, with Asia accounting for about 22% of this.

That, in turn, presents an opportunity for financial services firms to intermediate, advise and assist.

What’s ahead for financial institutions in Asia

The use of artificial intelligence (AI) and machine learning (ML) has ballooned as financial institutions seek operational efficiencies and are keen to provide a superior customer experience. These tools have enhanced risk management, fraud detection and investment insights from significant volumes of data sets.

While some industry experts are calling for caution around the widespread adoption of AI and machine learning, a report from McKinsey, for instance, said the potential for value creation at banks is one of the largest across industries, as AI can help unlock $1 trillion of incremental value for banks annually. It can also boost revenues, lower costs and help financial institutions uncover new opportunities due to the ability to process more data and generate more insights by using AI.

HSBC has incorporated AI across a wide range of tools, including its trading terminal, HSBC AI Markets, which helps institutional investors navigate financial markets – using both real-time and historical cross-data sets.

AI can help unlock $1 trillion of incremental value for banks annually

HSBC also launched an AI-powered structured product for private banking clients in Asia. This uses AI and other technologies to turn data into investment insights and forecasts techniques to enhance asset allocation.

The adoption of tokenised assets is another theme, opening new avenues of liquidity and giving new opportunities for wealth creation. HSBC has built the HSBC Orion platform for borrowers to issue digitally native assets such as digital bonds. Digitally native bonds are financial instruments that are created and managed using blockchain and smart contract technology to create efficiencies in capital markets.

In December, the HKSAR government announced its intentions to launch a second round of tokenised green bonds, appointing HSBC among other banks to explore the possibility of a USD and/or EUR and/or CNH and/or HKD, multi-series, fixed rate, up to two years, digitally native green bond issuance. The bonds would be recorded and cleared via Hong Kong Monetary Authority's Central Moneymarkets Unit using HSBC Orion.

Driving change

It goes without saying that to truly revolutionize the financial services industry, collaboration between different parties within the financial services ecosystem is essential. Financial technology firms are a key piece of the puzzle to help take the digital journey in the sector to the next level.

For example, HSBC has tested tokenised deposits in collaboration with fintech major Ant Group to make intra-group payments. This aims to enable real-time treasury fund movement between accounts held by a corporate within the HSBC network.

Financial technology firms are a key piece of the puzzle to help take the digital journey in the sector to the next level.

Conducted under the HKMA’s Fintech Supervisory Sandbox arrangement, the test encompassed the issuance, transfer, and redemption of deposit tokens. Kelvin Li, Head of Global Fund Platform, International Business Group, Ant Group, said: “Blockchain and Web3 technologies are enabling digitalisation of industry collaboration and innovations on value movement, significantly improving the efficiency on liquidity and corporate treasury management.”

As financial institutions seek to expand across Asia, HSBC is uniquely positioned to support their ambitions, given its strength and knowledge of Asian markets, and supported by industry leading digital platforms and products.

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